e-money - Pwim.Net

Financial Conduct Authority, the Pacemaker of the UK FinTech Revolution

Established on Apr. 1 2013, the Financial Conduct Authority (FCA) regulates the conduct for 59,000 financial services firms and financial markets in the UK. Given that the UK financial service sector employs over 2.2 million people and contributes GBP 65.6 billion taxations in the UK economy, the FCA strives to ensure a fair, regulated payment market for customer protection and maintain the UK’s reputation as a major global financial hub.

Apart from regulating the financial service market, the FCA is also the pacemaker of FinTech in the UK. We arranged an interview with Maha El Dimachki, Head of Payments of the FCA during the Singapore FinTech Festival,which El Dimachki shares with us the contribution of the FCA for the UK as the thriving FinTech hub, opportunities and threats of e-money firms from the current digital disruption.

Could you please give us a brief summary of your background and how you first became interested in the potential of Financial Technology?

Payment is an area that has interested me for a long time, having spent quite a number of years in the front line, operational, strategy, governance and risk management roles in and around payments, domestic and global. You cannot talk about fintech without talking about payments. We see a lot of FinTechs operating in the payments space and bringing to market new ideas that in some cases, like e-money, are now part of the fabric of our society. These new propositions have the potential to make our lives safe, seamless and secure. It can also disrupt them, damage our finances and destroy our trust.

The FCA, through its innovative work, seeks to encourage innovation in the interest of consumers. The question is how can we help innovative firms operate in a regulatory context, getting their products to market faster? And crucially, how can we ensure that the ones who get there do this in a safe way with the consumer at the heart of their propositions?

We are now at the point where the things that used to be seen as a niche can be seen as a mass market. Serious, sophisticated technologies operating in the financial system for real public gain.

By harnessing new technologies and turning them to the public good, we’re able to do things that just weren’t possible before. We’ve heard of examples where eye-gazing technologies help people with cerebral palsy to operate a laptop, communicate and make decisions or the use of biometrics across multiple disciplines and sectors. It’s exciting to see fintech firms looking to find solutions to address society-wide concerns like financial inclusion, or supporting various sectors of society with niche and specific needs.

What do you think has driven the FinTech revolution in the UK to make it one of the world leaders in this field?

London has become a thriving fintech hub. There are over 1,600 fintech firms in the UK and this number is predicted to double by 2030.

This state of affairs depends on some important contributory factors like entrepreneurial talent, availability of capital, the availability of technology and a supportive regulatory environment.

For payment firms, the implementation of the second payment services directive (PSD2) and open banking have become key enablers to driving innovation. The FCA’s Innovate and Sandbox – and all the initiatives that go with it such as our TechSprints – have played their part in this. For example, we have seen a large number of propositions coming through the FCA sandbox using DLT and blockchain technologies to find innovative solutions in financial services, notably applied in cross border payments with the aim to make them faster and more secure.

Whilst the UK has enjoyed a strong position as a fintech hub, we should never take our fintech sector for granted – but if we understand what supports it and has led to it developing, we stand a better chance of nurturing it.

How can institutions of different sizes benefit from the challenges of digital disruption today?

We’re now far down the road of the fourth industrial revolution – one dominated and defined by transformative technology – and the pace of change is only going to get faster.

Digital disruption provides opportunities to small and new players, as well as incumbent firms. All firms with know-how can provide new services to customers or to other providers. They may also be able to cut costs and partner up to create more compelling offerings for customers. Meanwhile, digital disruption can also offer opportunities to simplify or reduce compliance-based costs using RegTech. The M&A activity among payments firms continues to be strong and more and more organizations are seeing the value of partnerships. All this brings value to consumers and contributes to economic growth.

Payments and E-money firms epitomize our point that this kind of innovation brings great opportunity, but potentially create even greater threats if not done right. They have the potential to make our lives safe, seamless and secure; but can also disrupt them, damage our finances and destroy our trust.

These are not notional risks. Many of the firms we supervise have business and operating models that are evolving and adapting in ways that traditional businesses can only dream of. But oversight and risk management within these firms need to keep up to ensure that the sector develops in a safe way and in the interest of consumers.

Could you please tell us about your position, responsibilities and some day to day activities that you are involved with at the FCA?

My team is responsible for supervising over 1,150 payment and e-money firms in the UK Payments Sector, as well as supporting our retail banking colleagues. Our firms span small start-up technology companies to the UK’s largest merchant acquirers with established global footprints.

The FCA has a strategic objective to ensure markets work well. To advance this, we have 3 operational objectives:

• To promote effective competition in the interest of consumers

• To secure an appropriate degree of protection for consumers

• To protect and enhance the integrity of the UK financial system

We always have these in mind when speaking directly with firms, and setting our supervisory priorities.

In payments, our work focuses on key priorities designed to ensure that consumers are adequately protected when using the services of non-bank payments and e-money firms and that firms are not vehicles for financial crime and money laundering.

One of the key customer protections in the regulation of payment and e-money firms is the need to segregate and safeguard customer funds from other firm money. If this is not done in a sound way, and the firm fails, consumers may lose their money. It is, therefore, an important priority that firms get this right.

It is in the commercial interest of firms that they don’t fail. Prudential management of firms is a key focus of the FCA. Monitoring firm’s compliance with its regulatory capital requirements, and ensuring they have sufficient controls in place to identify when they may be likely to face financial difficulty so management can take steps to address the harm, or safely close the business in an orderly fashion before it’s too late. We see a clear link between firms facing prudential stresses and the potential for wider regulatory and conduct failings within firms leading to consumer harm and damaging trust in the wider market.

Financial crime is an FCA wide priority – with implications for individual firms, consumers, wider market integrity, and the security of the UK. Firms must ensure that they have the right systems and controls in place to detect and prevent money laundering and financial crime activities.

There is no typical day in the life of a payment supervisor. On any given day, the team may be reviewing intelligence and speaking with law enforcement agencies to identify the potential harm to consumers, investigating issues with individuals and firms, conducting on-site visits, or monitoring remediation activities.

I am keen to ensure that we continue to understand the challenges and opportunities within the sector such that we develop our supervisory work with the ability to respond to an environment of rapid change.

Financial Conduct Authority, on the 2 Key Initiatives to the Era of Open Finance

Following the Part 1 interview of the Financial Conduct Authority, Maha El Dimachki, Head of Payments of the FCA reveals some of her key initiatives in the FCA, including the significance of the second Payment Services Directive (PSD2) among the EU countries and the rationale of the Stronger Customer Authentication. As Co-Chair of Spectrum, the BAME Network Group at the FCA, El Dimachki also provided some advice for women in FinTech!

You were heavily involved with the delivery of the second Payment Services Directive (PSD2), could you tell us more about the objective of this directive and why it was highlighted as a revolutionary implementation for the EU?

PSD2 is intended to build on the success of the original Payment Services Directive in opening up competition in the provision of payments, promote innovation, and make payments safer and more secure. The new regime came into effect on 13 January 2018. We are already starting to see its impact on the number of new and innovative business models launching in the UK, and changes to how we as consumers make payments.

PSD2 further promotes competition and innovation through the introduction of two new regulated activities – Account Information Service Providers (AISPs) and Payment Initiation Service Providers (PISPs). AISPs include account aggregation services aiming to help consumers manage their finances by bringing all of their bank account data together in one place. PISPs allow consumers to pay for goods and services online by sending money directly from their bank account, without using a credit or debit card.

We have seen quite a number of propositions coming through our sandbox that has taken advantage of the introduction of PSD2 and it is an area with immense fintech activity. The market sees this as just the beginning and this has the potential to move from a world of open banking to open finance and possibly open data.

Another project you have spearheaded is the Strong Customer Authentication? How does this process differ from traditional authentication and why is it necessary?

PSD2 introduced new requirements intended to make payments safer and more secure. The new rules, referred to as Strong Customer Authentication (SCA), are intended to enhance the security of payments and reduce the risk of unauthorized transactions.

As consumers, we are becoming increasingly familiar with the introduction of two-factor authentication in different aspects of our lives. SCA requires the adoption of two-factor authentication when making payments and accessing online/mobile banking. Customers must successfully authenticate using two of three possible factors.

Something you are (inherence), something you know (knowledge) something you have/own (possession).

Technology will play a role in making authentication solutions as frictionless and efficient as possible for consumers. However, as with all digital innovation, technology may not work for everyone. We have been clear that firms must implement SCA solutions that work for all their customers.

Firms were required to comply with the new requirements on SCA from 14 September 2019. However, we recognize that some payment journeys are more complex than others, requiring industry-wide changes to deliver effective solutions that work for all. We have provided the industry with extra time to implement SCA for card-not-present e-commerce transactions due to the significant risk of disruption to customers and businesses. The industry has until March 2021 to test and implement solutions for SCA for card payments when shopping online. We expect firms to develop strategic solutions and are monitoring progress closely.

As Co-Chair of Spectrum, the BAME Network Group at the FCA, you support and foster D&I, what advice do you have for women and especially young women regarding the FinTech environment?

The FCA believes that the value of diversity and inclusion can be seen in the decisions that businesses make so it’s vital in terms of how we regulate the conduct of the industry. We realize we have a responsibility to lead by example within the financial services sector, highlighting diversity and inclusion as an integral element of good conduct. We want to work closely with firms across the sector, both to share our insights and to learn from what others are doing.

Personally, I am passionate about diversity and inclusion and believe that when you have a diverse team that brings their whole selves to work and feel comfortable in being who they are without feeling pressure, prejudice or simply out of place is an incredible strength to any team. The loyalty, motivation and ultimately productivity that we see achieved is invaluable.

This is how I aspire and challenge myself to lead my team but it is also where my role as co-chair of our BAME network group comes in. So, what I say to women or those who identify as BAME or LGBTQI or any other protected characteristic is don’t hide who you are, be the best version of you that you can be, be open and willing to share your experiences and create a positive and inclusive dialogue around these topics but most of all, support one another. We cannot advance a D&I agenda if we aren’t all in it together and we are bought into the story and the journey. We will continue to chip away and we will make more and more progress. One day, women will not be afraid to dream big and achieve.

Beyond your own projects, are there any other FinTech initiatives that have you excited?

Of course, an increasingly high trending topic that I’m excited to see develop is open finance. Why? Well not only does it build on the benefits already provided to consumers and businesses through open banking, but it has the potential to go further, transforming the way consumers and businesses currently interact with financial services. As open banking-like access extends beyond payment accounts to a wider range of other financial products, we could see a number of developments across industries being led by consumer-centric innovation.

This is a real opportunity for FinTechs to be at the forefront of this innovation and dictate the pace of development. For a long time, the big players in the market have held the valuable asset of customer data and have benefited from the mass market presence. But there’s been a gap for new services to emerge which add value to customers’ financial lives, using their data. FinTechs have the agility to bring these services to customers but need scale. Open finance is an exciting opportunity for FinTechs. They could harness the rails that have been delivered through open banking to gain access to a wider range of financial product and consumer data. They could partner with larger firms to reach customers on a mass market. Whatever angle you look at it from, there is a role for FinTechs in the open finance ecosystem and we see this as a place for them to flourish while delivering invaluable consumer benefits.

And what makes open finance such a fertile ground for this type of innovation? For me, part of the answer lies in the great opportunity for consumers and businesses to have control over their own data and make it work for them in a digitalized world. FinTechs could drive this consumer empowerment by accessing consumer data with consent and in a secure environment, to provide consumers with a holistic view of all their financial products they hold in one place, showing them for the first time their total net worth. But open finance isn’t just about ‘knowing your worth’, it’s also about being empowered to make better informed financial decisions and improve your financial wellbeing.

We’re publishing a call for input at the end of the year which sets out our vision on open finance, it’s benefits and what it could deliver. We’d encourage you to read it and respond.

Fintech Startup Monerium Seeks to Issue E-Money on Algorand Blockchain

Licensed e-money issuer Monerium has partnered with Algorand, a permissionless, open-source, proof of stake blockchain protocol. Both firms have entered into a non-exclusive agreement.

Based on the terms of the agreement, Monerium will issue its programmable and regulated electronic money on the Algorand blockchain platform to support fiat-currency transactions on the protocol.

The CEO and Co-founder of Monerium, Sveinn Valfells, elaborated on the new partnership with Algorand, “We intend to support the Algorand protocol. Algorand integrates main features for several mainstream use cases like scalable proof-of-stake consensus and stateless smart contracts. The Algorand leadership has taken a deliberate and pragmatic approach in designing a blockchain for mainstream applications while paying attention to the ethos of the open-source community.”

W. Sean Ford, COO of Algorand added, “Algorand and Monerium have a shared vision for real-world use cases, which are empowered by innovative blockchain technology. We are pleased that Monerium will be bringing the e-money solutions to Algorand, and we want the ability of our community to leverage the technology for entire regulatory compliance.”

Monerium issued e-money

Monerium enables consumers to make blockchain-based financial services like cross-border settlements, based on the use of any preferred fiat currency like the U.S dollar, pound sterling, or euro. The company holds clients’ deposits of fiat money and issues them in digital form of usage on a blockchain.

The firm revealed that digital fiat currencies could make effective cost savings by enabling new complex types and removing intermediaries.

Monerium was established in 2016 and supported by ConsenSys. The company focuses on European countries like Liechtenstein, Norway, and Iceland to issue its programmable digital e-money backed by fiat currencies such as Icelandic krona, British pound, euro, and the U.S dollar. The digital e-money is aimed to serve as a bridge between blockchains and fiat money. The e-money can be used by both businesses and retail users to conduct online transactions and even store e-money without the involvement of payment service providers or banks.

In 2019 June, Monerium became the first firm globally to obtain a license from the Icelandic financial supervisory authority. The license allows the company to operate across the European Economic Area, which includes Liechtenstein, Norway, as well as EU countries. Since then, the company has announced many B2B use cases for e-money, including a cross payment service in euro.

Algorand’s new blockchain for business

In November 2019, Algorand released an upgrade to its protocol to include more tools for enterprise-scale dApps or decentralized applications. The upgrade also focused on building new scalable blockchain-native solutions for real-world use cases like asset tokenization.

The protocol is designed to enable firms to build dApps on Algorand’s blockchain without performance limitations. The platform is recognized to be the first to allow enterprise-wide dApps to be built on a pure Proof of Stake blockchain.

Image via Shutterstock